In recent developments, a growing trend is emerging in the semiconductor industry as major European chip manufacturers are significantly enhancing their collaborations with Chinese wafer fabricatorsThis strategic shift is not only an indication of the evolving dynamics of the global semiconductor market, but also a response to the pressing market demands and cost optimization strategies in the face of global supply chain challenges.

Notably, in mid-December, Jochen Hanebeck, the CEO of Infineon Technologies, declared the company’s intention to manufacture chips at Chinese wafer foundriesThis statement was closely followed by comments from Andy Micallef, Executive Vice President at NXP Semiconductors, who revealed that NXP is actively seeking to expand its supply chain within ChinaFurthermore, in November, STMicroelectronics announced a partnership with Huahong Grace Semiconductor Manufacturing, indicating a robust movement among European semiconductor companies toward establishing a presence in China.

This surge in collaborations can be attributed to various factors including cost considerations, the enormous size of the Chinese market, and the increasing demand for semiconductor products

Given these motivations, it is anticipated that this trend will not only continue but also intensify as these companies strategize to optimize their operations.

One of the primary motives behind this shift is the pressing need for localized manufacturing capabilities in ChinaHanebeck emphasized that local customers are demanding localized production for components that are difficult to replace“This is why we are moving a portion of our products to Chinese foundries,” he notedThe strategic relocation aims to alleviate concerns regarding supply security for Chinese customersHowever, specifics regarding production targets in China remain unspecified, as Hanebeck stated that such goals ultimately depend on market growth and product group developments.

Infineon is recognized as a leader in automotive microcontrollers (MCUs) and power semiconductors, with wafer production primarily based in Germany, Austria, and Malaysia

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Despite having several assembly and testing facilities in China, the company currently lacks a wafer fabrication plant on the Chinese mainlandNevertheless, the company’s automotive sector generates a substantial revenue stream from China, accounting for nearly a quarter of its income.

On a global scale, research firm TechInsights reported a 16.5% growth in the automotive semiconductor market in 2023, reaching a record size of $69.2 billionInfineon holds approximately 14% of the worldwide automotive semiconductor market, showing considerable growth from nearly 13% in 2022. Furthermore, as the largest supplier of automotive MCUs, Infineon’s sales in this domain surged nearly 44% compared to the previous year, capturing around 29% of the global market share in 2023.

Following a similar course, NXP Semiconductor has established assembly and testing facilities in China without a dedicated wafer fabrication plant

Micallef, while attending a project commencement ceremony in Singapore, acknowledged that China stands as the largest market for electric vehicles and telecommunications, indicating the company's efforts to find ways to serve clients who require domestic production capabilities.

Data suggests that in 2023, the Chinese market accounted for 33% of NXP's total revenueIDC further indicates that the top five players in the automotive semiconductor market together hold over 50% market share, with Infineon leading at 13.9%, followed by NXP and STMicroelectronics with market shares of 10.8% and 10.4%, respectively.

The rationale behind these moves toward Chinese foundries is multifold, according to expertsFirstly, the vast size and demand within the Chinese market necessitate local production capabilities, allowing European manufacturers to quickly meet local demands while reducing logistics costs

Additionally, the cost-competitiveness of Chinese wafer foundries, coupled with their mature industrial chain and lower production costs, creates an attractive proposition for these companiesFinally, significant advances in China’s semiconductor manufacturing processes, particularly in mature technologies (28nm and above), enable European firms to leverage local capabilities to guarantee product quality and reliable delivery times.

Jean-Marc Chery, the CEO of STMicroelectronics, articulated a bold vision for the company’s local endeavors during an announcement on November 21st regarding their collaboration with Huahong Grace SemiconductorBy expressing that "the era of missionary work is over," he acknowledged the necessity for ST to have a local manufacturing base to keep pace with the rapid growth of the Chinese electric vehicle marketAs Chery noted, “If you are not there, you cannot react in time,” highlighting the crucial importance of being rooted in the local market to respond effectively to its needs.

STMicroelectronics has been operating in China for decades and has built substantial expertise over its 40-year presence

It currently employs approximately 5,000 workers across manufacturing, R&D, and sales and marketing sectors, boasting a clientele of over 8,000 across critical industries such as automotive, industrial, personal electronics, and telecommunications infrastructure.

Chery recently revealed that a dedicated production line at the Huahong Wuxi facility would be established to meet the demand for ST’s STM32 microcontrollers, utilizing equipment identical to that of ST’s own wafer fabs to maintain product quality consistencyInitial product releases from this partnership are projected for late 2025.

From the perspective of market outlook, analysts recognize considerable opportunities arising from these collaborationsAccording to Wang Peng, a researcher at the Beijing Academy of Social Sciences, European semiconductor giants are increasingly viewing China not just as a place of production but as a strategic partner in their supply chains due to its vast market potential and growing technological capabilities.

Moreover, the relatively high sales percentages of European companies in the Chinese market underscore the potential for meaningful collaboration in the semiconductor sector

As industry dynamics evolve, with the backdrop of international geopolitical complexities, companies are expected to bolster their supply chain security and diversification of partners.

Furthermore, as the landscape evolves, not only do European chip makers stand to gain from partnering with Chinese wafer fabs, but Chinese semiconductor equipment manufacturers and component suppliers are also likely to attain greater global recognitionChery has affirmed STMicroelectronics' commitment to a "China design, China innovation, China manufacturing" ethos, positioning the company to capitalize on the unique opportunities presented by the domestic market and to form deeper collaborations with local partners.

In conclusion, the growing collaborations between European chip giants and Chinese foundries signify a transformative phase in the global semiconductor industryAs cost efficiency, local market access, and technological advancements converge, this trend is set to reshape the fabric of semiconductor manufacturing, paving the way for more integrated supply chains and innovative product offerings that cater to the burgeoning demand for semiconductor solutions on a global scale.